January 15, 2012 FIRST QUARTER COMMENTS
WALK On The WILD SIDE
The S & P 500 began 2011 by rallying 8.4% and hit a three year high by May. It then dropped 19% before hitting bottom October 3. From there, it rebounded 7%, over the next 7 days and finished the year flat.
2011 was a volatile year. The Euro collapsed, and the earth trembled
in Fukushima and the Middle East. The dollar was not devalued and survived
as reserve currency. We did not default on our debt, although our credit
rating was downgraded. Interest rates and inflation remained low, and
the government easily
Although our market was flat, U.S. corporate operating profits increased 17% and could grow another 7% this year. For five decades, the S & P 500 has traded at 15.5 times earnings on average, and the ten year bond has yielded 6.7%. Currently, the index trades at 12.5 times earnings, the ten year is yielding 1.88%.
Current cash holdings exceed the total value of all U.S. equities. The amount of stock owned by hedge funds is lower now than in March 2009. Most household savings are at the money rate, and if confidence were to return to both business and the consumer, this fourth year of the bull market could be very rewarding.
The economy is growing at a rate slightly higher than the 1930’s. Chronic unemployment and housing is worse than during the Great Depression, and 46 million Americans are in poverty or relying on food stamps. Unemployment has exceeded 8% for 35 straight months, and black unemployment is at a 28 year high, along with the misery index. Home ownership is at its lowest rate since 1965, and the smallest portion of the population is working since 1983.
In 1928, the Federal Reserve raised the discount rate four times. Within 3 years, the money supply contracted 30%. From 1933 to 1936, federal spending increased 83%, the federal debt rose 73%, and the top income tax rate was 90%. By 1938, the New Deal had produced the nation’s first depression in a depression, and it took a World War for the economy to recover.
Wealth must be created before it can be redistributed. This happens best without government interference. The 1% earns 20% of the nationwide adjusted gross income, and pay 38% of the federal income taxes for the remaining 99% because they took the risk, worked hard, competed and achieved. What the gullible and envious do not understand is that individual freedom leads to prosperity, and there is no such thing as utopia.
“I favor tax cuts on economic grounds because it enables the ultimate
consumer, the ultimate individual you and me, to decide how the money
should be used. It makes no sense for me to send my money to Washington
to have somebody in Washington decide how to use it. I’d rather decide
how to use it myself, whether for charity or for welfare or for other
purposes. So that’s the first and most important argument. But the political
argument for it is that it’s the only way to keep Congress from spending
Significant reductions in taxes create prosperity.
3 years after World War I, unemployment was 11.7%
and the top income tax rate was 77%. Tax cuts led
3 years after World War II, civilian plants had closed and the military discharged 12 million people. The 1948 tax cuts led to the Fabulous Fifties where the GDP grew 4.5% on average, for six years.
7 years after the 1962 tax
cuts, the economy grew 5% on average. Total
tax revenue increased 62% and
7 quarters after the 1982
tax cuts, the economy grew 7.1% on average.
Over the next 7 years, 4.3%.
After the 1995 tax cuts, GDP growth averaged 4.5% from 1996 to the middle
After complete devastation following World War II, the Germans reduced tariffs, expanded free trade, and lowered taxes. From 1950 to 1960 their standard of living doubled. They spent $2 trillion to rescue their eastern brethren from communism, without help. Today, they are trying to rescue their southern neighbors from regressing to a living standard they last saw half a century ago.
For a country to grow, it needs people to work, consume and pay taxes.
When these people die, they
Germany will lose 30% of its working-age population in a few decades. They have the highest proportion of childless women in Europe. A recent poll found 16.6% of Germans stating none is the ideal number of children. In the U.K., Sweden, Finland, Austria, Switzerland, and the Netherlands 20% of the 40 year old women are childless. 60% of 30 year old Spanish women are childless. In Greece, there are 42 grandchildren for 100 grandparents and in Italy, 1.2 children per couple.
The Eurozone has become a no growth, overly regulated, undemocratic, and
HANG On To YOUR EMOTIONS
If the rich paid 3% to 4.6% more income tax, the 2010 federal budget deficit would have dropped from $1.29 trillion to $1.21 trillion. If all tax breaks for oil companies were eliminated it would cover less than half a day of federal spending. If depreciation were denied to the owners of corporate jets, for 100 years, it would cover less than one month of Medicare spending. Class warfare helps no one.
The U.S. has become the most powerful nation the world has ever known because of free enterprise and capitalism. Over the last 100 years, the world has seen a greater reduction in poverty and increase in life expectancies than in the previous 100,000 years. Free market capitalism allows the poor to become wealthy, something being acknowledged by the central planners of those socialist and communist states who have yet to fall onto the ash heep of history.
What fails to occupy the mind of the class warrior is any real knowledge and understanding of human behavior, history and economics. Free people, making voluntary decisions, motivated by their individual needs and desires has created the prosperity in the modern world, not any centralized system of authoritarians imposing their dictates to organize the economy, for the good of masses.
Financial planning: process of meeting your life goals through the proper
management of your finances.
Estate Tax Planning for 2012: An individual may gift $13,000 without incurring any gift tax liability. The gift tax exemption is $5 million per person, and the top rate on gifts over that amount is 35%.
Stocks Carry Higher Risk and Rewards: From 1926 to 2010, large cap stocks returned an average, annual 9.9%; small cap stocks returned 12.1% and long term government bonds 5.5%.
Tax Benefits of Rental Property: Since depreciation is deducted on investment property, this noncash expense can turn an operating cash profit into a tax loss, and allow one to pocket tax free cash.
Power Of Compounding Builds Wealth:
Financial advisors are a top source of financial guidance for 63% of mass-affluent Americans, according to Bank of America. 50% of those surveyed said receiving advice from a qualified advisor, has increased their confidence in their ability to meet their financial goals.
|Certified Financial Planner Board
of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL
PLANNER™ and federally registered
CFP (with flame design) in the U.S.,which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.